25 F.

3d 1539

In re GERI ZAHN, INC., d/b/a Just Clothes, Debtor.

FEDERAL DEPOSIT INSURANCE CORPORATION,
Plaintiff-Appellee,
v.
Gui L.P. GOVAERT, Defendant-Appellant.
No. 93-4120.

United States Court of Appeals,

Eleventh Circuit.
July 14, 1994.

Stuart I. Levin, Miami, FL, for appellant.

Robert L. Young, Carlton, Fields, Ward, Emmanuel, Smith & Cutler,
P.A., Orlando, FL, Manuel A. Palau, FDIC, Washington, DC, for
appellee.
Appeal from the United States District Court for the Southern District of
Florida.
Before HATCHETT and ANDERSON, Circuit Judges, and YOUNG* ,
Senior District Judge.
ANDERSON, Circuit Judge:

Gui L.P. Govaert, trustee in bankruptcy of Geri Zahn, Inc. d/b/a Just Clothes
("Just Clothes") appeals from the district court's finding that its claims for
wrongful dishonor of checks, fraudulent inducement and misrepresentation
against the Federal Deposit Insurance Corporation ("FDIC") as receiver for the
First American Bank and Trust ("FABT") are barred by the common law
D'Oench doctrine and 12 U.S.C. Sec. 1823(e). For the reasons that follow, we
affirm the district court's order.

I. BACKGROUND
2

Jason Zahn and Geri Zahn operated a clothing store known as Just Clothes.

Although Just Clothes originally had its commercial banking relationship with
Barnett Bank, in 1985, representatives of FABT persuaded the Zahns that it
would be more advantageous for them to switch their business accounts to
FABT. Representatives of FABT met with the Zahns at their office and over
lunch on numerous occasions.

On October 29, 1985, Tom Abrams, a vice president and general manager of
the local branch of FABT, sent a letter to the Zahns referenced "Financial
Relationship and Conditions," which set forth terms of a proposed loan to Just
Clothes. This letter stated that the requested $150,000 loan would be comprised
of a $100,000 capital loan with a five year term and a $50,000 revolving line of
credit, both at a rate of 1 and 1/2% over prime. The letter also required that Just
Clothes deposit $25,000 in an interest bearing account at FABT. At the time the
letter was written, FABT's loan committee had not yet approved any loan to
Just Clothes. Subsequently, Abrams and Caroline Graves, president of FABT,
visited the clothing store, at which time Graves allegedly told Zahn that the
committee had approved the loan.

The loan closing took place on November 26, 1985. The Zahns, Abrams, and
George Jordan, a loan officer for FABT, were present. At the closing, Jordan
explained the loan documents to the Zahns and presented them for execution.
The Zahns signed a promissory note ("Note") which called for a loan of
$150,000 at interest of 1 and 1/2% over the bank's prime rate. The Note also
required cash collateral in the amount of $75,000. The Zahns did not obtain
copies of the loan documents at the closing. In December of 1985, the Zahns
went to New York on a buying trip and wrote a number of checks on their new
checking account at FABT which were subsequently dishonored.

In the summer of 1986, the Zahns received copies of the loan documents that
they had executed on November 26, 1985, including the Note, U.C.C. financing
statement, security agreement, guaranty, assignment of lease, and landlord's
waiver. Upon reviewing the loan documents, the Zahns discovered that some of
the documents, including the Note, were dated January 8, 1986, instead of
November 26, 1985. Some of the provisions inserted in the Note also varied
from the terms the Zahns expected following discussions with bank personnel
and the October 29, 1985 letter. A floor was placed on the interest rate at 11%.
The term of the loan was one year instead of five years, with additional
collateral listed for the loan.

Zahn testified at trial that at the time he signed the Note, certain provisions of
the Note and other loan documents had not been completed, including the date,
the amount of collateral required for the loan and the interest rate. According to

Zahn, he executed the Note and loan documents even though these material
terms had been left blank because he trusted the bank and assumed that it
would conform to the terms set forth in its letter of October 29, 1985.
7

Jordan testified that the Zahns neither reviewed the loan documents prior to
signing them, nor asked Jordan any questions about them. According to Jordan,
all of the provisions had been completed at the time of signing except for the
date because it was FABT's practice not to date a note until it was actually
funded. The Note signed by the Zahns was subsequently dated January 8, 1986.

Zahn also testified at trial that at the November 26, 1985, closing, Jordan told
him that the loan would be funded that day or the next. Zahn contended that the
checks were dishonored as a result of FABT's refusal to immediately fund the
loan. According to Zahn, Abrams had assured him that all the checks the Zahns
had written would be honored.

Jordan disputed that the funding date was ever discussed at the closing, and
both he and Abrams denied telling Zahn that the loan would be funded by the
next day. Jordan testified that FABT honored all checks written up to the
$50,000 amount of the revolving credit loan, but returned checks for payment
once the Zahns had exhausted the balance of the credit loan. The statement of
account for the month of December, 1985, showed a negative balance in the
account of $47,327.11 as of December 31, 1985.

10

As a result of the dishonored checks, several vendors in New York refused to

sell merchandise to the Zahns on terms which would permit Just Clothes to stay
in business. In January, 1987, Geri Zahn, Inc. d/b/a Just Clothes filed for
protection in bankruptcy under Chapter 11. Subsequently, the case was
converted to a Chapter 7 liquidation proceeding.

11

Govaert, trustee for Just Clothes, filed an adversary proceeding against FABT,
alleging common law fraud, wrongful dishonor of checks, and intentional
interference with an advantageous business relationship. The bankruptcy court
conducted a trial on May 17, 1989 and issued findings of fact and conclusions
of law, entering judgment against FABT in the amount of $349,000. FABT
filed a notice of appeal from the judgment with the district court on September
12, 1989.

12

In December 1989, the Comptroller of the Currency declared FABT to be

insolvent and appointed the FDIC as its receiver. Accordingly, the district court
substituted FDIC, receiver for FABT, as the party appellant on April 16, 1990.

The district court on December 14, 1990, remanded the case to the bankruptcy
court for further findings as to the issue of damages.
13

On January 15, 1991, FDIC moved for clarification, rehearing, reconsideration

or relief from the December 14, 1990 order, arguing that the D'Oench doctrine
and 12 U.S.C. Sec. 1823(e) precluded the trustee from maintaining an action
against the FDIC. The district court granted the motion on February 5, 1991,
issuing an order clarifying that, after de novo review, it adopted the
bankruptcy's findings and conclusions except with respect to the issue of
damages which was remanded to the bankruptcy court.

14

The bankruptcy court issued findings of fact and conclusions of law with
respect to the issue of damages on December 19, 1991. Govaert v. First
American Bank & Trust Co., 135 B.R. 912 (S.D.Fla.1991). The bankruptcy
court entered judgment for the trustee in the amount of $572,208, representing
$472,208 in compensatory damages and $100,000 in punitive damages. FDIC
moved the bankruptcy court to alter or amend its findings on the grounds that:
(1) it lacked jurisdiction to enter a final judgment; (2) the Zahns' claims were
barred under the D'Oench doctrine and 12 U.S.C. Sec. 1823(e); and (3) FDIC
was exempt from punitive damages. On February 6, 1992, the bankruptcy court
ordered the FDIC to redeposit a cash bond with the court and further directed
the trustee to execute its judgment exclusively against that bond.

15

FDIC appealed the bankruptcy court's findings, conclusions, and judgment of

December 19, 1991 to the district court on March 25, 1992. On April 6, 1992,
FDIC also appealed the bankruptcy court's February 6, 1992 order pertaining to
redeposit of the cash bond. Among numerous objections, FDIC reiterated its
position first raised in its motion to reconsider the district court's December 14,
1990 order, that the D'Oench doctrine and 12 U.S.C. Sec. 1823(e) barred the
assessment of liability and damages against FDIC for wrongful dishonor,
fraudulent inducement or misrepresentation, where the claims were based on
oral or written side agreements.

16

On December 9, 1992, the district court issued an order finding that the claims
against the FDIC as receiver for FABT were barred under the D'Oench doctrine
and 12 U.S.C. Sec. 1823(e). The district court held that the FDIC was free to
enforce the terms of the January 8, 1986 promissory note and reversed the
bankruptcy court's order regarding redeposit of the cash bond.

17

On January 27, 1993, appellant filed this appeal, arguing that the district court
erred in holding its claims barred, urging that the D'Oench doctrine and 12

U.S.C. Sec. 1823(e) are inapplicable to tort claims not involving personal injury
or property damage. For the reasons that follow, we affirm the judgment of the
district court.
II. STANDARD OF REVIEW
18

Because the determination of the applicability of the D'Oench doctrine involves

a question of law, we review the findings of the bankruptcy and district courts
de novo. In re Empire for Him, 1 F.3d 1156, 1158-59 (11th Cir.1993).

III. DISCUSSION
19

Our analysis begins with an examination of the D'Oench doctrine's origins and
with the leading case itself. In D'Oench Duhme v. FDIC, 315 U.S. 447, 62 S.Ct.
676, 86 L.Ed. 956 (1942), the Supreme Court held that a "secret agreement"
outside the documents contained in the bank's records would not operate as a
defense against suit by the FDIC on a note acquired from a failed bank. Id. at
459, 62 S.Ct. at 680. Preventing such "secret agreements" permits bank
examiners to readily ascertain the bank's assets and its solvency. Id. at 460, 62
S.Ct. at 680. Accordingly, where the maker of a note "lent himself to a scheme
or arrangement whereby the banking authority ... was likely to be misled," such
a scheme or arrangement would not constitute a defense against the FDIC's suit
on the note. Id.

20

Subsequent cases have expanded D'Oench so that it "now applies in virtually all
cases where a federal depository institution regulatory agency is confronted
with an agreement not documented in the institution's records." Baumann v.
Savers Federal Savings and Loan Assoc., 934 F.2d 1506, 1510 (11th Cir.1991),
cert. denied, --- U.S. ----, 112 S.Ct. 1936, 118 L.Ed.2d 543 (1992). As
articulated by this court, the D'Oench doctrine provides:

21 a suit over the enforcement of an agreement originally executed between an

In
insured depository institution and a private party, a private party may not enforce
against a federal deposit insurer any obligation not specifically memorialized in a
written document such that the agency would be aware of the obligation when
conducting an examination of the institution's records.
Id. at 1515.1
22

Two policies fuel the D'Oench doctrine's requirement of memorialization of

agreements. First, application of D'Oench permits federal and state bank
examiners to rely upon the bank's records of regular banking transactions in

evaluating the institution's fiscal soundness. Langley v. FDIC, 484 U.S. 86, 91,
108 S.Ct. 396, 401, 98 L.Ed.2d 340 (1987). Particularly where the FDIC is
deciding whether to liquidate a failed bank, determinations must be made "
'with great speed, usually overnight, in order to preserve the going concern
value of the failed bank and avoid an interruption in banking services.' " Id. at
91, 108 S.Ct. at 401 (quoting Gunter v. Hutcheson, 674 F.2d 862, 865 (11th
Cir.), cert. denied, 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63 (1982)). Second,
requiring that agreements be executed and become regular banking records is
designed to "ensure mature consideration of unusual loan transactions by senior
bank officials, and prevent fraudulent insertion of new terms, with the collusion
of bank employees, when a bank appears headed for failure." Langley, 484 U.S.
at 91, 108 S.Ct. at 401.
23

Appellant urges application of a narrow exception to the applicability of

D'Oench which this circuit has adopted. D'Oench does not operate "to bar free
standing tort claims." Vernon v. Federal Deposit Ins. Corp., 981 F.2d 1230,
1233-34 (11th Cir.1993). Not all tort claims are barred. Rather, the key inquiry
is one of relatedness. This requirement demands that a tort be sufficiently
intertwined with regular banking transactions, such that exclusion of the alleged
"secret agreement" accords with the underlying policies of D'Oench. OPS
Shopping Center, Inc. v. Federal Deposit Ins. Corp., 992 F.2d 306, 310 (11th
Cir.1993).

24

One obvious indicia of relatedness would be whether the oral representations

were of matters that would generally be reflected in the records of ordinary
banking transactions. This reflects the central purpose of D'Oench: bank
examiners should be permitted to rely upon the institution's records of regular
banking transactions. For example, in Langley, the Supreme Court applied
section 1823(e) to bar a claim based upon an oral misrepresentation,
notwithstanding the fact that the claim sounded in tort. The alleged fraudulent
misrepresentations in Langley occurred during negotiation of a loan. 484 U.S.
at 89, 108 S.Ct. at 400. In the instant case, the alleged misrepresentations not
only were incurred during the negotiation of the loan, but the misrepresentation
involved the terms of the loan itself, and conflicted with the terms as set out in
the written documentation.

25

By contrast, in Vernon, the free standing tort claim at issue involved alleged
violations of securities laws and related claims arising from the claimants'
purchase of preferred stock and warrants to purchase common stock in the
failed institution itself. Relevant records would reside in the department of the
bank which handled the sale or transfer of the bank's own stock, as opposed to
the records of regular banking transactions. Thus, the relatedness requirement

rests upon the recognition that the D'Oench doctrine does not encompass those
free standing torts which do not implicate the records of regular banking
transactions. OPS, 992 F.2d at 310-11.
26

Appellant argues that his claims fall within this narrow exception and thus are
not barred. We disagree. According to appellant, the written loan terms did not
reflect the parties' true agreement with respect to the date of the Note and time
of funding.2 The alleged oral agreements were obviously part and parcel of the
loan negotiations. As such, they are matters which would normally be reflected
in the records of regular banking transactions. Indeed, in this case, appellant
challenges the express written terms of the Note, claiming that the written
terms were in conflict with the alleged oral agreement and thus not consistent
with the parties' true intent.

27

We readily conclude that appellant's claim is barred by D'Oench. This case falls
well within the core of the D'Oench bar, and well outside of the narrow "free
standing" tort exception.

28

Appellant makes two interrelated arguments concerning the judgment entered

by the bankruptcy court in favor of appellant prior to FDIC's takeover of the
bank. First, appellant argues that this judgment constituted a reliable record,
precluding application of the D'Oench bar. Second, appellant urges that
pursuant to that judgment, the funds ceased to be an asset of the bank, thus
preventing the FDIC from acquiring any "right, title or interest." See Grubb v.
Federal Deposit Ins. Corp., 868 F.2d 1151, 1158-59 (10th Cir.1989); Thurman
v. Federal Deposit Ins. Corp., 889 F.2d 1441, 1447 (5th Cir.1989); Olney Sav.
& Loan Ass'n v. Trinity Banc Sav. Ass'n, 885 F.2d 266, 275 (5th Cir.1989).
The Grubb decision reasoned that a judgment "voiding" an asset left no asset
for the receiver to acquire. Grubb, 868 F.2d at 1158. This reasoning ignores the
fact that an appealable judgment might be reversed, and economic value
remains in the asset itself. This Court has previously recognized that permitting
the D'Oench bar to be asserted on appeal may upset the result reached in the
trial court. Baumann v. Savers Federal Sav. & Loan Assoc., 934 F.2d 1506,
1514 (11th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1936, 118 L.Ed.2d
543 (1992) ("While we realize that allowing RTC to raise [the D'Oench
argument] here for the first time may result in overturning the outcome reached
in the trial court, we are aware of Congress's recognition that '[t]he appointment
of a conservator or receiver can often change the character of litigation....' ")
(quoting H.R.Rep. No. 54, 101st Cong., 1st Sess. at 331 (1989), reprinted in
1989 U.S.Code Cong. & Admin.News 86, 127). Further, the mere fact of
appellant's claim being "of record" cannot be dispositive, given the Supreme
Court's rejection of knowledge of the FDIC as a defense to D'Oench. Langley,

484 U.S. at 95, 108 S.Ct. at 403. See OPS, 992 F.2d at 311 n. 5 (actual
knowledge of a claim prior to takeover is irrelevant). The Grubb court
overlooked the requirement of D'Oench and section 1823(e) that bank records
be contemporaneous to a transaction, and overlooked the fact that the judgment
there, like the judgment in this case, was not contemporaneous. Thus, when the
FDIC examiners made their periodic examinations of the bank records--which
of course provides the basis for their on-going evaluation of the bank--they
were "unable to detect the unrecorded agreement and to prompt the invocation
of protective measures." Langley, 484 U.S. at 95, 108 S.Ct. at 403. This result
is further supported by sections 1821(d)(13)(A) and (B) of FIRREA which
indicate that FDIC on appeal can assert all rights available to it, including the
D'Oench doctrine. 3 Because the judgment of the bankruptcy court is not a final,
unappealable judgment under section 1821(d)(13)(B) and is still subject to
examination and correction on appeal, we conclude that the FDIC may assert
D'Oench for the first time on appeal in the district court, notwithstanding its
knowledge of an outstanding judgment at the time of takeover.
29

Appellant's other arguments on appeal are without merit and warrant no

discussion.

IV. CONCLUSION4
30

Accordingly, we conclude that appellant's claims against the FDIC in its

capacity as receiver are barred by the common law D'Oench doctrine and 12
U.S.C. Sec. 1823(e). The judgment of the district court is

31

AFFIRMED.

Honorable George C. Young, Senior U.S. District Judge for the Middle District
of Florida, sitting by designation

The D'Oench doctrine has been codified at 12 U.S.C. Sec. 1823(e), which
provides in pertinent part:
No agreement which tends to diminish or defeat the interest of the Corporation
in any asset acquired by it under this section ..., either as security for a loan or
by purchase or as receiver of any insured depository institution, shall be valid
against the Corporation unless such agreement-(1) is in writing,

(2) was executed by the depository institution and any person claiming an
adverse interest thereunder, including the obligor, contemporaneously with the
acquisition of the asset by the depository institution,
(3) was approved by the board of directors of the depository institution or its
loan committee, which approval shall be reflected in the minutes of said board
or committee, and
(4) has been, continuously, from the time of its execution, an official record of
the depository institution.
12 U.S.C. Sec. 1823(e).
2

Appellant also alleged that the written documentation contained other additions
and alterations, including the imposition of an 11% floor on the interest rate,
reduction in the term of the loan from five years to one year, and the listing of
additional collateral for the loan

The relevant sections of FIRREA provide:

(13) Additional rights and duties
(A) Prior final adjudication
The [FDIC] shall abide by any final unappealable judgment of any court of
competent jurisdiction which was rendered before the appointment of the
[FDIC] as conservator or receiver.
(B) Rights and remedies of conservator or receiver.
In the event of any appealable judgment, the [FDIC] as conservator or receiver
shall-(i) have all the rights and remedies available to the insured depository
institution (before the appointment of such conservator or receiver) and the
[FDIC] in its corporate capacity, including removal to Federal court and all
appellate rights; and
(ii) not be required to post any bond in order to pursue such remedies.
12 U.S.C. Sec. 1821(d)(13)(A) and (B) (1993).

The parties were invited at oral argument to file supplemental briefs addressing
the applicability of the recent panel opinion in Jones v. Resolution Trust Corp.,
7 F.3d 1006 (11th Cir.1993). However, rehearing en banc has been granted in

Jones, and the panel opinion was vacated. Resolution Trust Corp. v. Dunmar
Corp. et al. 20 F.3d 397 (11th Cir.1994)